Japan's megabanks expected to post record profits in coming years

Japan's three megabanks are likely to continue setting new earnings records as the central bank's monetary policy normalization boosts their margins.

Mitsubishi UFJ Financial Group Inc. (MUFG), Sumitomo Mitsui Financial Group Inc. (SMFG) and Mizuho Financial Group Inc. are each expected to report record net income for the fiscal year that ended March 31, 2026, and their earnings may rise further over the following two fiscal years, according to consensus forecasts from Visible Alpha, a part of S&P Global Market Intelligence. SMFG will report full-year earnings on May 13, while MUFG and Mizuho are set to announce their results on May 15.

"They [the megabanks] will continue to get a tailwind from rate hikes," said Tsuyoshi Ueno, a senior economist at NLI Research Institute. "But some of them may increase credit cost, given that the continued conflict of the Middle East could put a drag on the economy."

MUFG is forecast to report net income of ￥2.262 trillion for the fiscal year ended March 2026 and grow it to ￥2.446 trillion in the following fiscal year and ￥2.788 trillion in the subsequent year, according to Visible Alpha consensus estimates. MUFG's net interest margin is expected to rise from 0.71% to 0.81%, and then to 0.90% over the same period, the estimates show.

SMFG's earnings are also expected to rise, with net income projected at ￥1.598 trillion for the fiscal year ended March 31. Net income is forecast to climb further to ￥1.785 trillion, and then to ￥1.928 trillion over the next two years. The bank's net interest margin is estimated to increase from 0.85% to 0.95%, and then to 1.0% over the same period.

Policy normalization

Economists, including Ueno, expect the Bank of Japan (BOJ) to raise its policy rate in June after it kept the rate steady in April. The central bank had hiked by 25 basis points to 0.75% in December 2025, taking the benchmark rate to its highest level in three decades. The December rate hike was the fourth since the central bank's exit from negative interest rates in March 2024. Ueno expects the terminal rate to reach 1.5% by January 2028.

Kazuo Ueda, the BOJ governor, said during a press conference on April 28 that the decision to hold rates for now "reflects our view that we should look through inflation driven by temporary supply shocks." However, "if those shocks feed through into second-round effects on underlying inflation, interest rates will need to be raised," he said.

Ueda's remarks come amid the war in the Middle East that has sent crude oil prices soaring. As a country dependent on imported oil, the war has cast uncertainty over the outlook for both Japan's economy and inflation.

The three megabanks may face credit risk as the outlook for the Middle East war, which has disrupted traffic through the Strait of Hormuz, remains uncertain.

MUFG's loan loss provisions are expected to increase to ￥345.37 billion in the fiscal year ended March 2026, from ￥108.73 billion in the previous year. The bank's loan loss provisions may rise to ￥385.34 billion in the following fiscal year and to ￥408.98 billion in the subsequent year.

As of May 11, US$1 was equivalent to ￥157.02.